A small company called Kindle Lending Club plans to launch a beta site today or tomorrow that will let it profit from Amazon's e-book ecosystem.

The five-person start-up has a simple business model. First, connect people who are willing to lend the electronic books to those who want to borrow them. Second, when the borrowers discover that they didn't finish with Amazon's 14-day lending window, offer a link to buy the e-book and share a portion of the resulting revenue through Amazon's affiliate program.

It might not be enough to acquire Facebook, but site founder Catherine MacDonald--a 40-year-old Canadian mother of three who lives in Malta and Tunisia--believes it'll pay the bills. "I'm anticipating that Martin (my husband) and I will be able to work on this full-time, so a full-time living for the family seems realistic," she told CNET News.

And it could be enough to raise Amazon's eyebrows. It's no Napster, but the Kindle Lending Club probably has facilitated the lending of more than 1,000 books among strangers. At scale, it holds the potential to automate free book lending on a global scale when Amazon would prefer to see an actual sale.

It's an interesting concept, one that's spun up rapidly since Amazon launched Kindle lending on December 30. MacDonald started with a Facebook group, quickly concluded that wouldn't accommodate the interest, raised an angel investment commitment of $12,500, signed up two Web developers, and is launching a site--all within two weeks.

"Last Thursday, December 30, I heard about the introduction of lending (I missed the October announcement) and I was thrilled," said MacDonald, who's worked in Web development and search marketing since 1998. "While my husband and I were going to sleep that night, an idea suddenly occurred to me, and I told him, 'Martin, you have to remind me to start a Facebook page in the morning to get people together to lend each other books!' So, that's what I did, and it just took on a life of its own."

A look at the Kindle Lending Club beta site (click to enlarge)Photo by Kindle Lending Club

Time was of the essence, too, since others had the same idea, she said. "It became apparent really fast that we had to move decisively and do social media and software development in tandem," she said. Another social media angle: The site will broadcast lending possibilities and desires through the KLCfeed on Twitter.

She estimates that the Facebook site has facilitated more than a thousand loans. "It seems that most of the book loans on offer are snapped within a day of being posted," she said.

Amazon didn't respond to a request for comment. It can't have been a complete surprise, though, to a global-scale Internet-company. If nothing else, Barnes & Noble beat Amazon to market with a sharing option on its rival Nook e-reader system, and that option has spawned Nook book-sharingsites.

The existence of the Kindle Lending site sheds a revealing light on Amazon's move to add a lending option.

E-book limits
From a customer point of view, one of the big drawbacks of e-books compared to physical books is that digital rights management (DRM) technology, including encryption, typically restricts a person's ability to lend or resell a book. If you buy a Kindle or Nook book, it doesn't become the sort of communal family property a physical book might. And of course systems such as Google Books, Amazon Kindle, and Barnes & Noble Nook aren't compatible.

Even though a physical book can be physically copied, it's a pain, and the results aren't likely to match the original. But digital content is famously easy to copy. That makes it tough for a company such as Amazon to strike the right balance between a totally locked down Kindle ecosystem and one that's got some measure of the freedoms of physical books.

Amazon's 14-day lending constraint, along with a limit of one lending per book and the fact that publishers don't make all books available for lending in the first place, puts a pretty significant brake on those freedoms while still permitting a person trying to infect a friend with enthusiasm for the latest good read. But the Kindle Lending Club shows that there's a big appetite for free books and a corresponding urge that people have to share.

"I have seen people who have said that they will save their loans for friends and family, but the number of lenders who are just entirely altruistic has really impressed me," MacDonald said. "We have seen it in action over hundreds of loans already, so I think it's reasonable to imagine that people will continue to be altruistic."

MacDonald wants to keep money out of the core lending activity, too.

"I do not want to associate money or even credits with book lending on our platform," she said. "I like the idea that someone who does not have access to a credit card, for whatever reason, can still borrow a book from someone--I could imagine someone in a developing country borrowing a book on business start-ups from someone in America. We enable people to do something simple: just lending a book like we've all been doing for years; but the scale and reach now makes this action potentially transformational on a global level. That gives me a great feeling when I lend an e-book, and I trust that the majority of our community members will feel the same."

Publishers might not get a warm feeling of happiness pondering the possibility of free exchanges of their books. But one factor that doubtless weighed into Amazon's calculations is how often lending actually hurts sales directly. It's not clear how often book borrowing supplants book purchasing, but it's not hard to imagine people might read a free book that they wouldn't pay for.

Bear in mind also that the ease of copying isn't just a threat to publishers. It also drastically lowers their production costs, giving them an incentive to embrace the e-book revolution as long as it's not Napsterized.

And even if 100 percent of the lending replaced actual Kindle e-book book sales, the idea still might be good for Amazon in the big picture. Here's why.

Expanding ecosystem
Kindle is an ecosystem. Amazon sells Kindle e-readers as well as books, and some number of freely available Kindle books makes a Kindle more valuable. And of course, once somebody has bought a Kindle, they're more likely to buy future e-books through Amazon.

Even if a person doesn't buy a Kindle reader, using Amazon's free Kindle apps for tablets, phones, and computers instead, that's another customer in the ecosystem. The more books in a person's Kindle library, the less likely that person is to jump ship for a Nook--and probably the more likely that person is to purchase or upgrade a Kindle reader.

"In our view, as the Kindle ecosystem expands, Kindle device users will not only continue buying more e-books but also subscriptions, accessories, hardware warranties, and eventually use Kindle's wireless and computing capabilities for other data and content consumption (e.g. pictures, music, videos, e-mail, etc.)," said Sandeep Aggarwal, an analyst with Caris & Company, in a Kindle report today.

Last, don't forget that the site is funded by sales of Amazon products, and a lot of Kindle customers will be using her site.

"I borrowed [Jonathan] Franzen's 'Freedom' on December 30," she said. "I know I'm not going to get it finished, so I'll have to purchase a copy."